Attack of the clone firms: over £78 million stolen in 'clone' firm investment scams

27 Jan 2021 11:43 AM

New warning from Action Fraud, the City of London Police and the Financial Conduct Authority (FCA).

Action Fraud and the City of London Police are working with the Financial Conduct Authority (FCA) to issue a warning to the public, as reports of ‘clone firm’ investment scams increased by 29 percent1 in April 2020 compared to March, when the UK went into its first lockdown.

Action Fraud reporting data reveals losses of more than £78 million1 between January-December 2020, with victims losing £45,2421 each on average, when investing with fraudsters imitating genuine investment firms.

The ongoing financial impact of coronavirus may also make people more susceptible to these types of clone scams. Forty two percent 2 of investors say they are currently worried about their finances because of the pandemic, and over three quarters (77%)2 have, or plan to, make an investment within the next six months to help improve their financial situation.

However, even the most experienced investor could be at risk. Three quarters (75%)3 of investors said they felt confident they could spot a scam. However, 77%3 admitted they did not know, or were unsure, what a ‘clone investment firm’ was.

What is a ‘clone firm’ investment scam?

‘Clone firms’ are set up by fraudsters using the name, address and ‘Firm Reference Number’ (FRN) of real companies authorised by the FCA.

The criminal gangs running these scams can engage with victims through a number of channels. Often they will take out adverts on social media platforms and search engines. Victims will then click on these adverts and be taken to exact replicas of websites belonging to genuine investment firms. The most sophisticated criminals will even clone the website domain name. Once victims have registered their interest, they’ll be contacted by the fraudsters, who often obtain the names of genuine employees of investment firms and create seemingly legitimate company email addresses, but with very subtle changes.

There have also been instances of investors inputting their contact details into genuine price comparison websites and then being phoned by criminals purporting to be from a well-known, legitimate investment firm. Another tactic used by these criminals to dupe investors is to send victims sales materials linking to websites of legitimate firms.

The returns being promised by these criminal gangs are often modest so as not to arouse suspicion, but slightly better than the market rate, therefore appealing to those looking for long term, ‘safe’ investments.

In the end, victims will end up transferring their savings directly to criminal gangs, under the false belief that they are sending them to a legitimate investment firm. Often, victims  will not realise that they’ve been scammed until months later, when they fail to receive quarterly returns or investment reports.

Superintendent Sanjay Andersen, from the City of London Police’s National Fraud Intelligence Bureau, yesterday said:

“The coronavirus pandemic has caused many people to feel financial worry and uncertainty - something which criminals will feel no remorse about capitalising on. We have sadly seen an increase in the number of investment fraud reports in 2020, compared to the previous year, with a spike in reports in the summer, after the first national lockdown was lifted.

"This new trend of 'clone firms' is particularly worrying as it makes it harder for people to spot a scam. Investing any amount of money comes with an element of risk and its important people take time to do their research by visiting www.fca.org.uk/scamsmart and seek independent impartial advice from an expert.

“If you think you’ve already invested into a fraudulent scheme, report it to Action Fraud.”

Mark Steward, Executive Director of Enforcement and Market Oversight, FCA, yesterday said:

“Clone investment scams are sophisticated and extremely difficult to spot. Last year we received over 3767 reports of clone scams to our consumer helpline. Fraudsters use literature and websites that mirror those of legitimate firms, as well as encouraging investors to check the Firm Reference Number (FRN) on the FCA Register to sound as convincing as possible.

“If you’re considering an investment, visit the FCA Register to make sure the firm you’re dealing with is authorised. Use the contact details on our FCA Register, not the details the firm gives you, and check for subtle differences to avoid ‘clone firm’ scams. And if you’re still unsure, call our consumer helpline for further information. When it comes to clones, I cannot emphasise enough how important it is to double check every detail.”

Pauline Hawkes-Bunyan, Director of Business: Risk, Culture and Resilience at the Investment Association, yesterday said:

"In a year clouded in uncertainty, organised criminals have sought opportunity in misfortune by attempting to con the public out of their hard-earned savings. The investment management industry is working closely with the police and regulators to stop these scams, and is collaborating with our partners in Government to close them down and prevent them being advertised in the first place.

"These scams are sophisticated and cloaked in many different disguises. That is why we urge savers and investors to be as vigilant as possible to protect their savings and think carefully about the risks of fraud when making decisions about their money."

Janet, a finance officer from Chester, lost £40,000 to a clone investment firm. Talking about her experience, she yesterday said:

“I’m quite savvy minded when it comes to money – being a finance officer I thought I was a confident investor and thought I knew how to spot the warning signs of a scam. After searching the internet for high-return bonds, I received a call the next day about investing in student accommodation. 

“I found legitimate details of the company online – everything seemed genuine, so I invested. A few months later, after a couple more investments, I started to get a bit worried – I still hadn’t received confirmation of the latest investment. I tried to call the contacts I had been speaking to, but the numbers were invalid. It was clear I had been scammed. I had lost £40,000. I really thought I’d be able to spot a scam, but now I know they can be far more sophisticated than I had ever imagined.”

How to protect yourself

Even though two in five (38%)3 investors said they would check the company’s Firm Reference Number (FRN), checking this alone isn’t enough. Criminals carrying out ‘clone firm’ investment scams will often copy FRN numbers and encourage victims to check the number on the FCA Register to prove their legitimacy.

Anyone considering an investment opportunity should double-check all the details of a firm, not just the FRN, on the FCA register. This includes the telephone number and it is important you only use the number on the FCA Register to make contact with the firm.

Remember,

  1. Reject unsolicited investment offers whether made online, on social media or over the phone. Be wary even if you initiated contact.
  2. Always check the FCA Register to make sure you’re dealing with an authorised firm and check the FCA Warning List of firms to avoid.
  3. Only use the telephone number and email address on the FCA Register, not the contact details the firm gives you and look out for subtle differences.
  4. Consider seeking impartial advice before investing.

Investors can test if they can spot an investment scam from a smart investment by taking the Scam or Smart quiz, visit www.fca.org.uk/scamsmart to find out more.

If you think you’ve fallen victim to an investment fraud, report it to Action Fraud as soon as possible online at www.actionfraud.police.uk or by calling 0300 123 2040.